Risk Misallocation on Highway Construction Projects

Abstract

Highway construction projects are the most time-bound to a design-bid-build contract structure aiming at passing the large amounts risk instead of promoting a state of shared risk among all project participants. When issues such as changed conditions, third-party delay, or questions regarding design adequacy arise, the effects of risk misallocation are magnified, resulting in projects that suffer with regards to cost and schedule. The research presented in this article discusses strategies and guidelines to help project participants improve the state of risk allocation on highway projects. After conducting a literature review, a survey performed identified the top 5 most commonly misallocated risks in the highway construction industry to be (1) design adequacy, (2) specification interpretation, (3) third-party delay, (4) changed conditions, and (5) claims process. In-depth legal research on these risks was done in order to develop flow charts, which are the primary contribution of this study to the highway construction industry. The charts presented are designed to serve as project controls to more appropriately allocate risk and improve project performance. The charts will help to minimize non-value-adding activities such as disputes and litigation, a necessary step towards improving the state of risk allocation in the highway construction industry.